California Worst State for Employment Practices Lawsuits, New Research Finds

In April, a 66-year-old man was awarded $26 million by a jury that found he had been discriminated against and harassed based upon his age by his supervising managers at Staples.

The Los Angeles Superior Court jury found in favor of Bobby Nickel and awarded him $3.2 million in compensatory damages and nearly $23 million in punitive damages. While this likely qualifies as one of the biggest awards of its kind in California, the case illustrates the dangers to employers from employee lawsuits in the Golden State and the associated liability.

And a recent study has found that California employers are especially susceptible to lawsuits by employees.

A study of employment practices litigation data by Hiscox, an international specialist insurer, found California, Illinois, Alabama and Mississippi and the District of Columbia to be the top five riskiest areas of America for employee lawsuits. Businesses in these states and jurisdictions face a substantially higher risk of being sued by their employees than the national average.

According to the study, on average, U.S. businesses with at least 10 employees have a 12.5% chance of having an employment liability charge filed against them.

However, businesses in several states face a much higher level of exposure to litigation. California has the most frequent incidences of employment practices lawsuits in the country, with a 42% higher chance of being sued by an employee for establishments with at least 10 employees over the national average.

In other words, if you operate a business in California, you need to be especially mindful of how you hire, discipline, fire and treat employees. Employment practices lawsuits run the gamut from discrimination to harassment, and if a case ends up in court, it can cost your company dearly.

State laws can have a significant impact on risk. For example, the employee-friendly nature of California law in the area of disability discrimination may contribute to the high frequency of lawsuits in the state. Discrimination cases filed at the state level in California are brought under the Fair Employment and Housing Act (FEHA).

FEHA applies to a broader swath of businesses, covering any company with five employees, versus a 15-employee minimum for cases brought under federal law as outlined in Title VII of the Civil Rights Act.

“Not only are employment lawsuits more likely in those states, but the likelihood of catastrophic verdicts is also significantly higher,” said Mark Ogden, managing partner of employment at labor law firm Littler Mendelson.

“Unlike their federal counterparts, where compensatory and punitive damages combined are capped at $300,000, most state employment statutes impose no damages ceilings,” he said. “Consequently, employers in high-risk states must ensure that their workforces are adequately trained regarding workplace discrimination, harassment and retaliation and that policies forbidding such conduct are strictly enforced.”

From an employer’s perspective, settlement costs to resolve an Equal Employment Opportunity Commission claim, for example, fade in the face of additional – often unrecorded – costs to the organization. This includes the costs of:

The distraction of an organization’s staff for months as documents are gathered and prepared, an internal investigation is conducted, and time is invested in fighting the claim,

The loss of employee morale,

The potential loss of an employer’s reputation as an employer of choice for recruiting and retaining desirable employees, whether found guilty or innocent, and

Attorneys’ fees, which can cost as much or more than an eventual settlement, if the employer is found guilty.

The average single-claimant lawsuit results in defense costs of $250,000 and a jury verdict of $200,000.

Your strategy

Employers are advised to prevent employment discrimination and create a workplace culture that discourages employment discrimination, harassment and retaliation, with these actions:

Implement and integrate a strict policy that makes employment discrimination of any type unacceptable in your workplace.

Train your managers in the implementation of the anti-discrimination policy with the expectation that prevention is their responsibility.

Mandatory employee training should address many of the same issues as the managers’ training relative to employment discrimination.

Establish cultural expectations and norms.

Respond to an employee complaint about employment discrimination, harassment or retaliation in a timely, professional, confidential, policy-adhering manner. Address the employee complaint through to appeal, when necessary.

The insurance solution

While creating policies that minimize the chances of employee litigation, you need to protect yourself in case you are sued. And the best way to do that is by purchasing an employment practices liability insurance policy, which covers costs (including attorneys’ fees) and any damages associated with the following types of action:

Wrongful termination

Discrimination

Sexual harassment

Whistleblower claims

Wage and hour

Other employment-related claims such as libel, slander, invasion of privacy, mental anguish, assault, and breach of contract.

Call us for more details on how an EPLI policy can help protect your business from a wide variety of employee actions.